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Imagine owning a company whose products and services have nearly guaranteed steady demand and government-regulated supply. Add in the beauty of government-supported monopoly-like power and steady dividend yields — and you’ve attained investor nirvana.

Although these companies may be considered boring and overlooked by investors seeking rapid capital appreciation, they remain an ace in the hole for long-term stock investors.

If you haven’t guessed, I’m talking about utility stocks.

Despite a recent pullback, these consistent and proven dividend machines are ideal “buy” candidates for any long-term portfolio.

With this in mind, here are my two favorite utility stocks:

Southern Co. (NYSE: SO)
A leading U.S. provider of electricity, this large-cap public electric utility has a market capitalization of more than $38 billion and boasts a price-to-earnings (P/E) ratio of nearly 19. Southern has subsidiaries in four states, including Mississippi Power, Georgia Power, Gulf Power and Alabama Power.

The company’s beta is -0.10, meaning it’s nearly as volatile as the overall market, and its stock currently yields more than 4% annually. Profitability has increased from close to $2 billion in 2010 to more than $2.1 billion in 2012, indicating an enhancement of more than 4%.

Southern has plans to invest $14 billion over the next several years to increase transmission and power-generating capacity. In addition, the company is targeting earnings growth of 5% to 7% for each of the next five years.

What I like best about this utility is the fact that Southern investors are enjoying much faster dividend growth than the majority of other utilities. The company has grown at an astounding rate of 40% over the past 10 years, yet the payout ratio remains at less than 30% of cash flow, which means future dividend growth is probable.

Presently throwing off a forward annual yield of 4.6%, this utility is an excellent prospect for long-term investors.

Duke Energy (NYSE: DUK)
The largest electric company in the United States, Duke provides electricity to more than 7 million homes in the Carolinas, the Midwest and Florida. The company also provides natural gas distribution services in Ohio and Kentucky, as well as diverse power generation and renewable-energy assets in Latin America and North America.

Over the past three years, Duke’s net profits have increased from roughly $1.3 billion in 2010 to more than $2.1 billion this year. The company currently boasts a beta of 0.08 and an annual yield of 4.5%.

Risks to Consider: Utilities are widely considered to be among the safest, best-yielding stock investments available. However, a recent study has made it clear that utility stocks may actually be more volatile, as a whole, than the overall stock market.

While this in no way negates the power of utility stocks as dividend-producing machines, it shows that utilities may share similar risks as the rest of the stock market. As always, choose your investments carefully and be sure to diversify.

Action to Take –> On the daily technical chart, Duke and Southern appear nearly identical. They have followed a lockstep pattern of falling from the highs, breaking below the crucial technical support of the 200-day simple moving average, then bouncing back above resistance, setting up an ideal buying level. My 12-month targets are $75 for Duke Energy and $50 for Southern.

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